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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Teledyne Technologies Incorporated (NYSE:TDY). With a market valuation of US$9.6b, TDY is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for TDY, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
TDY’s Debt (And Cash Flows)
Over the past year, TDY has maintained its debt levels at around US$1.0b – this includes long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$106m to keep the business going. Additionally, TDY has produced cash from operations of US$455m in the last twelve months, resulting in an operating cash to total debt ratio of 46%, signalling that TDY’s current level of operating cash is high enough to cover debt.
Can TDY meet its short-term obligations with the cash in hand?
At the current liabilities level of US$724m, the company has been able to meet these obligations given the level of current assets of US$1.1b, with a current ratio of 1.54x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Aerospace & Defense companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can TDY service its debt comfortably?
TDY’s level of debt is appropriate relative to its total equity, at 36%. TDY is not taking on too much debt commitment, which may be constraining for future growth. We can test if TDY’s debt levels are sustainable by measuring interest payments against earnings of a company. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For TDY, the ratio of 18.72x suggests that interest is amply covered. Large-cap investments like TDY are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
TDY has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. This is only a rough assessment of financial health, and I'm sure TDY has company-specific issues impacting its capital structure decisions. You should continue to research Teledyne Technologies to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TDY’s future growth? Take a look at our free research report of analyst consensus for TDY’s outlook.
- Valuation: What is TDY worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TDY is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.